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What is the difference between hard and soft credit pulls?

Soft and hard credit pulls occur when your employer, banks, or other financial sector companies check your credit. The major difference between soft and hard credit pulls is the effect it has on your credit score.

What is a hard credit pull?

Also formally referred to as a hard inquiry, a hard credit pull occurs when a bank or lender verifies a person’s credit report when he/she applies for a mortgage, personal loan, new credit card, auto loan, personal loan, and student loan, etc.

The lender will go through the credit history and other credit information and then use it to make a decision about whether or not to lend you the funds that you seek. A hard pull only occurs when it is authorized by you. Hard inquiries tend to stay on the credit report for 2 years, but if affects the credit score for just one year.

Your credit score can decrease if several hard pulls are carried out in a short space of time. This is because such multiple inquiries are considered to be red flags. The presence of many hard pulls is perceived by the credit score algorithms as desire to open new financial accounts. New accounts mean that there will be additional debt to handle which can increase the chances of the borrower making late payments or missing payments. Hence, it is deemed risky by the credit scoring algorithms.

A hard pull is not noteworthy enough and hence its effect on the credit score is minimal. The manner in which it affects the credit score is dependent on the credit history of the borrower. Thus for instance, an individual with an excellent or good credit history of over 20 years will have nearly zero impact on his/her credit score due to a hard inquiry. That is because it is evidence of the fact that you have successfully maintained good credit for a long period of time, which is consequently taken as being indicative of reduced ‘payment issues’ risk by the credit scoring structures and the credit bureaus. On the other hand, a person with a just 4-year credit history will see a bigger effect on his/her credit score when a lender performs a hard pull.

If you are shopping for best price: In case you are shopping for the best auto loan or mortgage deals and if such shopping (from the same type of lenders for the same type of loans) occurs within a period of 40 to 45 days, then most of the new credit reporting models consider such multiple hard credit pulls to be one single hard inquiry. Thus, the credit score does not decrease each time a hard inquiry is made.

What is a soft credit pull?

A soft credit pull does not impact the credit score. Also, it can be carried out without being authorized by you. Soft inquiries are cursory glances of the credit report and such reviews do not lower the credit score. Such inquires are not related to new credit or loan applications.

For example, when an employer checks the credit report of a prospective job-applicant, it is considered as a soft pull. It is also the case when you receive mails about pre-approved auto loans, insurance, or new credit cards from varied lenders. Such lenders perform soft pulls of the credit report to verify whether or not you are qualified for such loans and offers.

In most cases, you will be the only one to see soft credit pulls on the credit report. However, your creditors who have authorized access to your credit report may be able to see such soft inquiries made by debt settlement agencies. Also, soft pulls made by insurance companies may be visible to other insurance institutions.